Wall Street Again Doubts Profitability

Henry Ross Perot, the Texas computer millionaire who became Wall Street's biggest backer three years ago, decided recently he had had enough. He had pumped enough money into the securities business, and he was getting out.

The news hit Wall Street last Monday. morning, and it hardly cheered anyone. The financial community has been shrinking for several years, and more and more investors have begun to view the securities business as a gold mine that is pretty Well played out.

With Mr. Perot deciding to close the doors of duPont Walston,;Inc., the brokerage house with the second largest branch office system in the business, it became evident that ailing Wall Street firms caret be Made profitable even with massive doses of capital and drastic surgery.

To some institutional investors, the message was not upsetting. The securities industry, the, duPont Walston closing has again indicated, is narrowing down to a relatively small number of wellrun, highly diversified investment firms that can provide professional service and control their costs at the same time.

DuPont Walston had incurred a $22.9‐million loss from July through November last year, and its directors decided that the best way out was to sell the offices and go out of business. To other brokerage house executives, the decision was somewhat surprising because Wall Street recently has been making more money.

Paine, Webber, Jackson & Curtis, Inc., for example, reported higher earnings for the fourth quarter of 1973. And Donald Regan, chairman of the board of Merrill Lynch, Inc., said last week that the results of the biggest finn In the brokerage business would be equal to or better than a year earlier.

These brighter prospects, however, passed duPont Walston by, apparently mainly because many of its top salesmen had left the firm. Without the commission business in the first place, no amount of automation, and efficient management could make the place profitable.

This interrelationship between a brokerage ,firM's sales force and its efficiency is a delicate one, as Mr. Perot discovered. Unlike computer engineers; brokers don't like to be regimented. Brokers can leave and take their clients with them.

Yet securities firms are turning more frequently to corporations for capital, and the effort is bound to intensify. Mr. Perot's disappeinting results in trying to streamline duPont Walston, however, will make executives more chary about committing their stockholders’ money to the securities business.

The American Financial Cdrporation, a lending concern based in Cincinnati, recently considered making a $3‐million loan to Shearson, Hammill & Co., but then decided against it.

“When we looked at the total investment banking picture, we changed our minds,” Charles Keating, executive vice president, said. “We don't feel we are able to compete competently in this field. It may be great for some people but not for us.”

The individual investor is the foundation of a large brokerage house network, and individuals have been inactive in the stock market in recent years. Stock prices have moved down, and common stocks last year were the worst place to invest money. Short‐term money market instruments such as Treasury bills and bank certificates of deposit did the best and bonds came in second.

Institutional brokerage comMissions, meanwhile, face cut‐throat competition as big trades are done at negotiated commission rates. As a result, the profit outlook for the securities business is not bright.

Against this background, Mr. Perot had to make his decision.

Four years ago, Mr. Perot, the son of an East Texas cotton broker, was worth—on paper at least—more than a billion dollars as the result of his stake in a Daliasbased data processing company, the Electronic Data Systems Corporation.

In recent weeks, however, this stake had dropped below $150‐million, and the shrinkage must have been enough to make Mr. Perot do some hard thinking. He had put some $100‐million into Wall Street with no success, and it must have become apparent that he had to change course.

Directors of duPont Walston met Saturday and Sunton met Saturday and Sunday a week ago and decided to offer the company's headquarters in downtown Manhattan and its 143‐office network for sale.

By Friday afternoon, duPont Walston had sold 70 offices, received two or more bids each on 37 more and reported “some sort of interest” in the remaining 36. A spokesman said he expected the operation to be wound up some time this week..

The demise of duPont Walston may make observers conclude that Ross Perot really is a good guy. He helped to save Wall Street in 1971, and now he is closing up shop in a tidy way, giving its 300,000 customers a chance to move their business tb other firms before losses mount and regulatory authorities step in and close the place down.

He came into Wall Street probably motivated in several ways: To help the business of E.D.S., to help veethyeth,antadtlaobothnalye from East Texas was as good as the duPont of Delaware.

In the process, Mr. Perot seems certain to lose a large amount of money and the best he can do now is cut his losses. Making such a decision before it Is too.late should save the Street from any number of headaches, and the financial community seems appreciative.

A story going the rounds in Wall Street is that Ber nerd J. Lasker, then vice chairman of the New York Stock Exchange and a friend of President Nixon, helped persuade Mr. Perot to put all that money into duPont Glore Forgan by appealing to his sense of duty.

Mr. Lasker, the story goes, got Mr. Nixon to appeal ‘to Mr. Perot on the basis of the need to keep Wall Street from toppling altogether. Goodbody and ,Hayden Stone were enough for a while.

If the story is true, it bears a striking similarity to an effort “Bunny” Lasker made to help save the merger of Hayden, Stone into Cogan, Berlind, Weill & Levitt, a merger blocked for a time because Jack E. Golsen, an Oklahoma businessman and a subordinated lender to Hayden, Stone, thought it would be fairer to force the firm into liquidation.

Mr. Golsen would lose either way, and he thought liquidation might cleanse the Street. So Mr. Lasker called and reminded him that President Nixon was concerned about the problems of ,.all Street and their repercussions on the national economy.

In any case, Mr. Golsen at the last moment did not block the rescue of Hayden, Stone. Mr. Perot went on to save du Pont Glore Forgan.

Five Medicare subcontracts to E.D.S., which had been held up for a year or more, were approved by the Social Security Administration within six months after Mr. Perot agreed to help the Nixon Administration by balling out duPont Glore Forgan.

Mr. Perot vigorously has denied any connection beOmen these events. “As much as anyone would like to say that there is political favoritism,” he said, “there is, not. Zero.”

Ross Perot once promised Wall Street that he would stay in the securities business “through thick and thin,” but he certainly is not that stubborn. Now he is getting out before the stock exchange community euchres him into giving it all back.

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A version of this archives appears in print on January 27, 1974, on Page 1 of the New York edition with the headline: Wall Street Again Doubts Profitability. Order Reprints|Today's Paper|Subscribe